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Trump considers barring ZTE and Huawei purchases for US carriers

December 28, 2018

President Trump is considering an executive order to bar U.S. companies from using telecommunications equipment made by Chinese companies Huawei and ZTE, according to three sources who spoke with Reuters.

The move would mark Trump's latest effort to cut Huawei and ZTE out of the U.S. market. The U.S. government claims the companies, two of China's largest network equipment companies, work at the behest of the Chinese government, and their equipment could be used to spy on Americans. The companies have denied that their equipment is used for spying. 

The companies did not return requests for comment. 

Rural U.S. operators that are among the companies' biggest customers worry that they may also have to remove Chinese-made equipment without compensation. Industry officials differ over whether the administration can legally require U.S. operators to do that.

The executive order could come as early as January and would direct the Commerce Department to prevent U.S. companies from purchasing equipment from foreign telecommunications makers posing national security risks, telecoms industry sources and administration officials said. The order has been under consideration for more than eight months, according to the sources.

While the order, which has not been finalized, is not likely to name ZTE or Huawei, Commerce officials would likely interpret it as authorization to restrain the expansion of equipment made by the two companies, sources said. 

China and the U.S. have been locked in a trade war that has impeded the flow of hundreds of billions of dollars' worth of goods.

The executive order would invoke the International Emergency Economic Powers Act, which gives the president the authority to regulate commerce in response to a national emergency.

The issue has new urgency as U.S. wireless carriers are seeking partners as they prepare to adopt 5G wireless networks.

In August, Trump signed a bill barring the U.S. government from using ZTE and Huawei and equipment.

A White House official said the U.S was "working across government and with our allies and like-minded partners to mitigate risk in the deployment of 5G and other communications infrastructure." The official also said the White House had nothing more to announce.

The Wall Street Journal in May first reported the order was being considered, but it was never issued.

Hua Chunying, China's foreign ministry spokeswoman, on Thursday said she did not wish to comment on the order since it had not been confirmed.

"It's best to let facts speak for themselves when it comes to security problems," she said.

"Some countries have, without any evidence, and making use of national security, tacitly assumed crimes to politicize, and even obstruct and restrict, normal technology exchange activities," Hua added. "This in reality is undoubtedly shutting oneself off, rather than being the door to openness, progress and fairness."

Major U.S. wireless companies have cut ties with Huawei, but small rural carriers have relied on Huawei and ZTE equipment since it is usually less expensive.

So central is Huawei to small carriers that William Levy, vice president of Huawei Tech USA, is on the board of directors of the Rural Wireless Association, which represents carriers with less than 100,000 subscribers. About a quarter of RWA members use ZTE or Huawei equipment in their networks, RWA said in a filing with the Federal Communications Commission.

The RWA is worried that an executive order could force its members to remove ZTE and Huawei equipment and halt future purchases, said Caressa Bennet, RWA general counsel. Bennett said it would cost $800 million to $1 billion for all RWA members to replace their ZTE and Huawei equipment.

The FCC in April gave initial approval to a regulation barring the use of federal funding to pay for telecommunication infrastructure to companies that buy equipment from firms considered threats to U.S. national security. Analysts have said the regulation is aimed at ZTE and Huawei.

The FCC is also considering requiring carriers to remove and replace equipment from firms considered a national security risk.

Pine Belt Communications in Alabama estimated it would cost $7 million to $13 million to replace its Chinese-made equipment, while Sagebrush in Montana said replacement would cost $57 million and take two years.